Why India's welfare plans are anti-poor

Why India's welfare plans are anti-poor

India is among the world's largest consumers of food and also among the largest growers. What India does has a significant impact on international prices, notes Laveesh Bhandari.

It's good to see that independent thought is still present in the government.

When one part of the government comes out with a serious and objective piece on how the government itself has been responsible for creating food inflation, hopefully the government is more likely to take note.

The Commission for Agricultural Costs and Prices has come out with a discussion paper (the fourth in a series) titled 'Taming Food Inflation in India', penned by its Chairman Ashok Gulati and independent researcher Shweta Saini.

Using econometric analyses, the paper shows how food inflation is an outcome of an increasing fiscal deficit, rising farm wages and transmission of global food inflation.

These three items together account for 98 per cent of the variations in India's food inflation between 1995-96 and December 2012.

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Image: Rinku, 20 months, who weighs 4 kg and suffers from severe malnutrition, lies in his mother's lap in Naingarh village of Sheopur district in Madhya Pradesh.Photographs: Reinhard Krause/Reuters

Why India's welfare plans are anti-poor

In other words, economic growth or population growth are not responsible for inflation.

They, no doubt, provide the environment where external and internal forces created by government action are pushing up prices in an inordinately sustained manner.

Unlike most other pieces of wisdom originating from the government, CACP quite unambiguously points to the fiscal deficit as among the chief culprits.

And, more importantly, mentions a small checklist of critical reforms that can arrest deficit, while maintaining or improving agriculture productivity, and simultaneously giving a boost to overall economic growth.

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Image: A child has his breakfast at a flood relief camp in Purniya district town of Bihar.Photographs: Rupak De Chowdhuri/Reuters

Why India's welfare plans are anti-poor

For all these reasons, CACP's discussion paper deserves greater attention than the various reports we are accustomed to seeing -- or even the Plan document for that matter.

Fertiliser subsidies are among the worst directed subsidies, not only do they reach the beneficiaries in an inadequate manner, the way they are given out simultaneously encourage underuse and overuse of the fertiliser that itself impacts productivity.

This is all well known, but that CACP has also tied in the impact on the Fisc.

The suggestion of directly targeting subsidies based on farm size is good, and one of those ideas whose time has come, especially with rapidly expanding banking networks and beneficiary identification mechanisms.

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Image: A girl lies on the ground as she cries for food in Akhera village in Haryana.Photographs: Adnan Abidi/Reuters

Why India's welfare plans are anti-poor

India is among the largest consumers of food items and also among the largest growers. What India does has a significant impact on international prices.

CACP may not say it, but it is high time India built a mechanism for both impacting international prices to its advantage and insuring the domestic consumer against fluctuations owing to international influences.

But the larger point of the CACP study needs to be considered.

Few departments of the government are coming out with visionary agendas any more.

It appears as if large parts of the government have given up.

The Planning Commission and the latest documents it has brought out look like tired rehashes of the past.

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Image: A woman labourer walks past a residential estate under construction in Kolkata.Photographs: Rupak De Chowdhuri/Reuters